Chapter 15, Problem 3BTN

To determine

Concept Introduction:

Fair value of Securities:

When an investment is purchased, it is required to revalue the investment at the end of the year in order to make sure the fair value is correctly reflected in the financial statements.

Fair value refers to the realizable value of the securities at the end of a reporting period. It can be viewed as the replacement cost of the securities if such securities were purchased today.

If the cost of purchase is higher than the fair value of the investment at the time of revaluation, then the difference is debited to the fair value adjustments account.

If the cost of purchase is lower than the fair value of the investment at the time of revaluation, then the difference is debited to the fair value adjustments account.

Requirement 1:

Cost basis compared to previous years amount

To determine

Concept Introduction:

Long term Investments:

Long term investments are made by corporations in several avenues, such as Mutual funds, Government securities such as bonds, and commercial papers, Mortgage and Asset backed securities such as Real Estate Funds etc.

They represent steady income for the investor in the form of periodic interest payments or capital appreciation of the value of the investment.

They are often purchased are issued at par (at face value), at premium (at higher than face value) or at a discount (at lower than face value).

Requirement 2:

8 Types of investments held by Microsoft for the year ended 30 June, 2016.

To determine

Concept Introduction:

Fair value of Securities:

When an investment is purchased, it is required to revalue the investment at the end of the year in order to make sure the fair value is correctly reflected in the financial statements.

Fair value refers to the realizable value of the securities at the end of a reporting period. It can be viewed as the replacement cost of the securities if such securities were purchased today.

If the cost of purchase is higher than the fair value of the investment at the time of revaluation, then the difference is debited to the fair value adjustments account.

If the cost of purchase is lower than the fair value of the investment at the time of revaluation, then the difference is debited to the fair value adjustments account.

Requirement 3:

Unrealized gains and losses of Microsoft for the year ended 30 June, 2016.

To determine

Concept Introduction:

Fair value of Securities:

When an investment is purchased, it is required to revalue the investment at the end of the year in order to make sure the fair value is correctly reflected in the financial statements.

Fair value refers to the realizable value of the securities at the end of a reporting period. It can be viewed as the replacement cost of the securities if such securities were purchased today.

If the cost of purchase is higher than the fair value of the investment at the time of revaluation, then the difference is debited to the fair value adjustments account.

If the cost of purchase is lower than the fair value of the investment at the time of revaluation, then the difference is debited to the fair value adjustments account.

Requirement 4:

Cost basis compared to recorded amount for the year ended 30 June, 2016.